Vanguard’s Hybrid Robo Makes Advisors Unhappy ... But They Use It Anyway

May 17, 2018

Many financial advisors have incorporated Vanguard’s hybrid robo-advisor into their practices -- but it doesn’t mean they don’t voice their complaints about it, the Philadelphia Inquirer writes. Chief among them are the platform’s limited offerings when it comes to tax planning and its low fees, according to the paper

Vanguard Personal Advisor Services, which has attracted $106 billion in assets as of the end of the first quarter, charges retail investors up to 0.3% for portfolios handled by a robo but with human financial advisors available by phone, the Inquirer writes. Investors with a minimum of $500,000 can have unlimited access to dedicated advisors remotely, meanwhile, according to the paper. And for those investing more than $25 million, the fee falls to just 0.05%, according to the Inquirer.

In an environment when investors are overly sensitive to fees, “Vanguard’s PAS is the scariest three letters to financial advisers,” says Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, according to the Inquirer. “It’s the Amazon of finance — if Amazon goes into a business, everyone shudders, and it’s the same with Vanguard.”

Wesley Gray, CEO of Alpha Architect in Broomall, tells the paper that his firm uses Vanguard’s products and doesn’t consider the firm a competitor. Nonetheless, he tells the Inquirer, “Vanguard’s declaring war on financial advisers, squeezing the last 100 basis points out of their fees.”

The way that PAS is designed — to get onto the platform, clients must first sell their existing funds — also means investors can be left exposed to massive tax gains, Dan Wiener, who manages over $5 billion in assets, including in Vanguard funds, and publisher of the Independent Adviser for Vanguard Investors newsletter, tells the Inquirer.

“They wanted to ‘blow up’ my portfolio by selling everything I have and moving it into their recommended funds [usually a few index funds] without taking into consideration taxes or other issues that were important to me,” he wrote, according to the paper. “They wanted to completely sell out my existing portfolio, realizing about $95K in gains. No discussion of doing it over 2 or 3 tax years, or asking ‘Do you have any tax loss carryforwards to help shelter some of the gains?’”